EDITORIAL: The Horror of the Russian Bear Market

EDITORIAL

The Horror of the Russian Bear Market

On Tuesday this week the price of crude oil fell by 4.4% on concerns about the Spanish economy undermining the global recovery and in response the value of Russia’s stock markets plunged even more, the MICEX ruble-denominated exchange tumbling by a jolting 5.7% and the dollar-denominated RTS exchange plummeting a shocking 6.5%.

The fact that Russian shares fall instantly with the price of oil, but fall to a greater extent than that price, conclusively shows how pathetically dependent that Russian economy as a whole really is on oil, a finite resource that is running out fast. It is the unmistakable harbinger of doom for Russian society, as it is eaten away at its very foundations.

The MICEX has now shed one-fifth of its value since April, and the RTS has done likewise.  Four more months like that and the entire Russian bourse would be history.

Encouragingly, there is strong evidence that foreign investors are at last wising up to the horrific dangers of investing in Russia, and are turning their backs on the Putin dictatorship.

Streetwise Professor reports “that foreign direct investment in Russia fell 17.6 percent in the first quarter of 2010.  And it is not that 2009 was such a great year: FDI in 2009 was down 41 percent over 2008.”  Foreign money, in other words, is abandoning Russia in droves despite the so-called “recovery” of the Russian economy and the so-called “reset” of relations called for by the Obama administration. Wise investors clearly see that Russia is nothing more than a gambling casino run by the mafia, and they realize that such a place is no place for their hard-earned cash.

The Moscow Times reports:  “As many as 85 percent of Russian businessmen ‘have their bags packed’ and are ready to leave the country because they do not trust the government.”

It’s about time that the world realized there is nothing to be gained by pouring money down the Russian rat hole.

15 responses to “EDITORIAL: The Horror of the Russian Bear Market

  1. Voice of Reason

    It is indeed scary what’s happening with the stock markets again. Look like the recession has returned. Here is the latest:

    http://online.wsj.com/article/BT-CO-20100525-708727.html?mod=WSJ_latestheadlines

    NEW YORK (Dow Jones)–U.S. stocks slumped Tuesday as concerns heightened over the eurozone’s ability to contain its debt problems and political tension on the Korean peninsula mounted.

    The Dow Jones Industrial Average dropped 209 points, or 2.1%, to 9859 in recent trading. It last closed below 10000 on Feb. 8.

    LA RUSSOPHOBE RESPONDS:

    You really are an amazingly ignorant and clueless person. THE WHOLE POINT of this post is that Russia’s market is ENSLAVED by America’s, so that when America’s falls so does Russia’s. Russia IS NOT the “safe harbor” that Vladimir Putin FALSELY CLAIMED it was.

    In this light, aren’t Russia’s aggressive attacks on the USA quite insane and suicidal? We think so. You, it seems, hardly think at all.

    • Euro and the Russian stock market also suggered the last week.

    • Voice of Reason

      THE WHOLE POINT of this post is that Russia’s market is ENSLAVED by America’s, so that when America’s falls so does Russia’s.

      Why write this article then? Only total idiots don’t know that we live in the age of global economy where troubles in USA cause THE WHOLE WORLD to go into crisis, and vice verse: troubles in Greece, Korea or anywhere else cause the US stock market to go into crisis.

      Russia IS NOT the “safe harbor” that Vladimir Putin FALSELY CLAIMED it was.

      In our global economy, NO COUNTRY is a “safe harbor”. Since you (purely accidentally?) forgot to give the exact quote, I have no idea what if anything Putin said and when, but I am pretty sure that the Russian finance minister Kudrin has always warned that the Russian economy and stock market are fully integrated into the world economy, and rise and fall with them.

  2. Kavkazwatcher

    Dudes,
    a more accurate depiction of the difference between US and Russian market movements (yesterday US roughly 2.1% and Russia roughly 6%) would be like the dog and the tail wagging… or, Russia’s just a like a little boat in the big wide ocean of global economics, so these peaks and troughs have it tossing up and down quite easily. Only those fun-loving risk addicts would ride the little boat…

  3. Kavkazwatcher

    Dimka,
    You imply non-Russian little boat is Titanic, how quaint. Its some standard misguided Russian/Russophile notion that Western systems are monolithic and somehow less enlightened. Sure – some parts are dangerous and misguided, such as “The One” and his foreign policy, but the rest of us don’t follow lemming-like.

    On the other hand, I have personally lived in Moscow, visited many regional cities, etc. Worked in many layers of society in Russia. I knew, and still know, many of the investors (both homegrown and expats) there. Do you? I can testify that there is a major “gambling” genome even in the largest institutions there, a distinct robber-baron mentality, even with the menials beneath them.

    • Voice of Reason

      Kavkazwatcher,

      I have extensively worked at derivatives trading departments at top Wall Street firms in New York and for top investment banks in Moscow. I found the investor clients in US derivatives and mortgage-backs to be much more risk-loving than the investors in Russian securities.

      And the dog-wag-the-tail effect goes both ways: the Asian financial crisis of 1997 led to the Russian financial crisis of 1998, which in turn led to the financial crisis in USA:

      http://en.wikipedia.org/wiki/Long-Term_Capital_Management

      Long-Term Capital Management (LTCM) was a U.S. hedge fund which used trading strategies such as fixed income arbitrage, statistical arbitrage, and pairs trading, combined with high leverage. It failed spectacularly in the late 1990s, leading to a massive bailout by other major banks and investment houses,[1] which was supervised by the Federal Reserve. In 1998 it lost $4.6 billion in less than four months following the Russian financial crisis and became a prominent example of the risk potential in the hedge fund industry. The fund was closed in early 2000.

    • I imply it will take 12 years of the US exports to pay off the US debts. And US debts are dozens of times more than the whole Russian GDP.

      That is what I call Titanic. Quite a big little boat, compared to the Russian economy.

      I don’t know who do you call “investors you knew”, darling. The very word “investors” is so f*cking XIX century:)

      Gonna tell you one thing: a company I work in is mostly owned by pensioneers. As well as Coca-Cola and Apple. Lufthanza and BP. And all the others. Same with almost every f*cking private bank on this planet. And the money to drive it all comes here through pension funds, guided by the rating agencies, which were talking BS all the way, as it turns out.

      So, to sum up, pensioneers lend their money to where rating agencies tell them to. You find any “investor” in this process, I give you a cookie in reward.

      Back to real life, I have seen professional managers here, and believe me, their way of thinking is in no way different to that of the managers from the EU and US (I had many occasions to compare).

      I also do not understand genetics of institutions well. And can’t say I encountered any “robber-baron mentality” lately. Yet I work in making money out of producing things and knowledge, and not in “sawing budget”. Maybe in that sphere it’s different, who knows.

    • Not even knowing it, K-watcher, you gave a very good evaluation of the modern capitalist economic system:

      Lemming-like.

      Stupid.

  4. Voice of Reason

    türk olarak size cok to you too..
    moia tvoia ne ponimay.

  5. He said it’s good news and he’s going to repost it in some turkish media:)

  6. Russia is fully integrated into the global financial system and like other nations their blue chip companies sunk their snouts into murky multiple repackaged cheap loans and got burnt, the impact on Russia was greater because of a lack of diversification of the economy. (They couldn’t spread the pain).

    Global investment is now hard to find, and it’s even harder for a country like Russia who are not part of the WTO and have during the Putin years gained a reputation as an unreliable partner, The Russians have a habit of shifting the contractual goal posts when they find it politically expedient. Shell experienced this when they were forced to reduce their share in Shakalin2 project by 25%.

    Most countries now have to tighten there belts here in the UK we need to reduce public spending by at least 20% over the next few years to get the economy back in good shape, this will be painful, but we have one big advantage, unlike Russia we have a well developed infrastructure, we have in place new hospitals, schools, public transport. And the road systems like our Airports are fully developed. So advanced nations like the UK can put on hold expensive infrastructural projects, for example a third runway at Heathrow has been shelved for now.

    Russia as we all know needs to spend not billions but Trillions of dollars to bring its crumbling infrastructure; Hospitals, schools, roads, rail, sewerage, energy supply up to even modest standards if you compare them to ours.Russias stability fund the $600 billion ear marked for pensions and infrastructural improvements took a beating, the government used $200 billion to support the economy. And with capital pouring out of Russia it looks unlikely these major infrastructural projects will be addressed anytime soon. Instead Putin will give the people a “dog and Pony” show called Sochi 2014.Bet they would rather see this money spent repairing the roads!!!.

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